##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-53198
 Merchants & Marine Bancorp, Inc.
  Mississippi
    
    26-2498567(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 3118 Pascagoula Street, Pascagoula, Mississippi
    
    39567(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company) þ(Do not check if a smaller reporting company)
  o þ




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TABLE OF CONTENTS
 Part I. Financial InformationItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 4. Controls and Procedures
    
    
    30Part II. Other Information
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. (Removed and Reserved)
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
   2




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Part I. Financial Information
 
 Item 1.
    
    Financial Statements
 MERCHANTS & MARINE BANCORP, INC., AND SUBSIDIARY
  (Unaudited)
    
    
    (Audited)March 31, 2011
    
    
    December 31, 2010ASSETSCash and due from banks
    
    $
    44,467,280
    
    
    
    20,010,142Federal funds sold
    
    
    97,000
    
    
    
    3,147,000Securities:Available-for-sale, at fair value
    
    
    178,873,975
    
    
    
    116,333,500Held-to-maturity, at amortized cost
    
    
    96,136,578
    
    
    
    112,981,596Non-marketable equity securities
    
    
    900,060
    
    
    
    900,060Loans, less allowance for loan losses of $3,268,217 and
$3,268,217, respectively
    
    
    215,348,812
    
    
    
    216,470,346Property and equipment, net of depreciation
    
    
    15,490,942
    
    
    
    15,727,476Other real estate owned
    
    
    2,799,723
    
    
    
    2,275,723Accrued income
    
    
    2,967,097
    
    
    
    2,401,057Other assets
    
    
    13,186,256
    
    
    
    13,148,056Total assets
    
    $
    570,267,723
    
    
    
    503,394,956LIABILITIESDeposits:Non-interest bearing demand
    
    $
    166,424,470
    
    
    
    79,614,176Interest bearing savings, demand and other time deposits
    
    
    327,784,665
    
    
    
    348,586,934Total deposits
    
    
    494,209,135
    
    
    
    428,201,110Federal funds purchased and securities sold under
agreements to repurchase
    
    
    14,253,773
    
    
    
    13,729,528Accrued expense and other liabilities
    
    
    9,092,322
    
    
    
    9,113,767Total liabilities
    
    
    517,555,230
    
    
    
    451,044,405STOCKHOLDERS EQUITYCommon stock  $2.50 par value per share, 1,330,560 shares
authorized, 1,330,338 shares issued and outstanding
    
    
    3,325,845
    
    
    
    3,325,845Surplus
    
    
    14,500,000
    
    
    
    14,500,000Retained earnings
    
    
    39,803,111
    
    
    
    39,013,928Accumulated other comprehensive income (loss)
    
    
    (4,916,463
    )
    
    
    (4,489,222
    )Total stockholders equity
    
    
    52,712,493
    
    
    
    52,350,551Total liabilities and stockholders equity
    
    $
    570,267,723
    
    
    
    503,394,956
   3




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
   Three Months EndedMarch 31,2011
    
    
    2010Interest incomeInterest and fees on loans
    
    $
    3,336,172
    
    
    
    3,483,863Interest on investment securities:Taxable
    
    
    1,609,243
    
    
    
    1,240,640Exempt from federal and state income tax
    
    
    211,661
    
    
    
    148,518Interest on federal funds sold
    
    
    26,884
    
    
    
    18,338Other interest income
    
    
    186
    
    
    
    95,945Total interest income
    
    
    5,184,146
    
    
    
    4,987,304Interest expenseInterest on deposits
    
    
    903,769
    
    
    
    994,429Interest on federal funds purchased and securities
sold under agreements to repurchase
    
    
    6,003
    
    
    
    7,151Total interest expense
    
    
    909,772
    
    
    
    1,001,580Net interest income
    
    
    4,274,374
    
    
    
    3,985,724Provision for loan losses
    
    
    241,624
    
    
    
    131,864Net interest income after provision for loan losses
    
    
    4,032,750
    
    
    
    3,853,860Non-interest incomeService charges on deposit accounts
    
    
    1,095,616
    
    
    
    1,003,492Miscellaneous
    
    
    358,948
    
    
    
    563,605Total non-interest income
    
    
    1,454,564
    
    
    
    1,567,097Non-interest expenseSalaries and employee benefits
    
    
    1,679,440
    
    
    
    2,120,075Premises
    
    
    667,569
    
    
    
    751,482Services and fees expense
    
    
    416,784
    
    
    
    508,912Miscellaneous
    
    
    1,241,874
    
    
    
    1,026,901Total non-interest expense
    
    
    4,005,667
    
    
    
    4,407,370Income before income taxes
    
    
    1,481,647
    
    
    
    1,013,587Provision for income taxes
    
    
    359,879
    
    
    
    245,770Net income
    
    $
    1,121,768
    
    
    
    767,817Net income per common share
    
    $
    0.84
    
    
    
    0.58
   4




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
   Three Months EndedMarch 31,2011
    
    
    2010Net income
    
    $
    1,121,768
    
    
    
    767,817Other comprehensive income, net of tax:Unrealized holding gain (loss) arising during period
    
    
    (427,241
    )
    
    
    (58,200
    )Comprehensive income
    
    $
    694,527
    
    
    
    709,617
   5




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
   AccumulatedCommon Stock
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    
    
    
    
    
    
    
    
    Retained
    
    
    ComprehensiveIssued
    
    
    Amount
    
    
    Surplus
    
    
    Earnings
    
    
    Income (Loss)Balance December 31, 2010
    
    
    1,330,338
    
    
    $
    3,325,845
    
    
    
    14,500,000
    
    
    
    39,013,928
    
    
    
    (4,489,222
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,121,768
    
    
    
    Cash dividends, $.25 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (332,585
    )
    
    
    Change in unrealized gain
(loss) on securities
available-for-sale, net of
taxes of $220,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427,241
    )Balance, March 31, 2011
    
    
    1,330,338
    
    
    $
    3,325,845
    
    
    
    14,500,000
    
    
    
    39,803,111
    
    
    
    (4,916,463
    )
   6




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
   Three Months Ended March 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,121,768
    
    
    
    767,817Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    314,741
    
    
    
    359,870Provision for loan losses
    
    
    241,624
    
    
    
    131,864Amortization of securities premium/discount
    
    
    60,364
    
    
    
    9,719Loss on sale of securities
    
    
    13,750
    
    
    
    (Increase) decrease in accrued income
    
    
    (566,040
    )
    
    
    128,289Reinvested earnings on securities
    
    
    (838
    )
    
    
    Decrease in interest payable
    
    
    (53,675
    )
    
    
    (66,381
    )Other, net
    
    
    613,224
    
    
    
    567,643Net cash provided by operating activities
    
    
    1,744,918
    
    
    
    1,898,821CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in federal funds sold and securities
purchased under agreements to resell
    
    
    3,050,000
    
    
    
    13,900,000Proceeds from sales and maturities of securities
available-for-sale
    
    
    15,486,250
    
    
    
    16,000,000Purchase of securities available-for-sale
    
    
    (78,679,050
    )
    
    
    (10,185,000
    )Proceeds from maturities of securities held to maturity
    
    
    17,055,000
    
    
    
    25,583,333Purchase of securities held-to-maturity
    
    
    (278,267
    )
    
    
    (40,109,393
    )Net (increase) decrease in loans
    
    
    355,910
    
    
    
    (6,279,193
    )Purchase of property and equipment
    
    
    (78,207
    )
    
    
    (42,696
    )Net cash used by investing activities
    
    
    (43,088,364
    )
    
    
    (1,132,949
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    66,008,025
    
    
    
    75,410,201Net increase in federal funds purchased and securities
sold under agreements to repurchase
    
    
    524,245
    
    
    
    2,027,771Dividends paid
    
    
    (731,686
    )
    
    
    (731,686
    )Net cash provided by financing activities
    
    
    65,800,584
    
    
    
    76,706,286Net increase in cash and due from banks
    
    
    24,457,138
    
    
    
    77,472,158Cash and due from banks, beginning
    
    
    20,010,142
    
    
    
    14,451,113Cash and due from banks, ending
    
    $
    44,467,280
    
    
    
    91,923,271
   7




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MERCHANTS & MARINE BANCORP, INC. AND SUBSIDIARY
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Interim Financial Statements:
   December 31, 2010 Balance Sheet Presentation.
  Use of Estimates.
  2. FAIR VALUES OF FINANCIAL INSTRUMENTS
  Cash and Federal Funds Sold:
  Investment Securities:
   8




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2. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
 Loans:
  Deposits:
   March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and federal funds sold
    
    
    44,467
    
    
    
    44,467
    
    
    
    23,157
    
    
    
    23,157Securities:Available-for-sale
    
    
    178,874
    
    
    
    178,874
    
    
    
    116,334
    
    
    
    116,334Held-to-maturity
    
    
    96,137
    
    
    
    97,773
    
    
    
    112,982
    
    
    
    114,389Non-marketable
    
    
    900
    
    
    
    900
    
    
    
    900
    
    
    
    900Loans, net of allowance
    
    
    215,349
    
    
    
    214,629
    
    
    
    216,470
    
    
    
    216,162Financial liabilities:Deposits
    
    
    494,209
    
    
    
    492,998
    
    
    
    428,201
    
    
    
    428,195Federal funds purchased
and securities sold under
agreements to repurchase
    
    
    14,254
    
    
    
    14,254
    
    
    
    13,730
    
    
    
    13,730
 3. DEFINED BENEFIT PENSION PLAN
  Three Months Ended March 31,2011
    
    
    2010Net periodic benefit cost (income):Service cost
    
    $
    95
    
    
    
    101Interest cost
    
    
    150
    
    
    
    151Expected return on plan assets
    
    
    (181
    )
    
    
    (165
    )Amortization (gain) loss
    
    
    65
    
    
    
    68Net periodic pension expense
    
    $
    129
    
    
    
    155
 4. SUBSEQUENT EVENTS
   9




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-looking Statements
  Formation of Holding Company
   10




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Executive Summary
 U.S.
Banker th
  Earnings Highlights
  Earning Assets
  Net Interest Income
   11




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Interest Rate Sensitivity
   12




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Loans
    Allowance for Loan Losses
     13




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Critical Accounting Policies
        14




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Asset Quality
  -
 Securities Available for Sale and Investment Securities
    15




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Deposits
  Liquidity
   Off Balance Sheet Arrangements
   16




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Contractual Obligations
    Risk-Based Capital/Stockholders Equity
    Non-Interest Income
   17




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Non-Interest Expense
   Income Taxes
   18




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TABLE 1
COMPARATIVE AVERAGE BALANCES  YIELDS AND RATES
  2011
    
    
    2010
    
    
    2009Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Assets
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateInterest-earning assets:Loans, net of unearned
income
    
    $
    219,836
    
    
    $
    3,336
    
    
    
    6.07
    %
    
    $
    212,286
    
    
    $
    3,484
    
    
    
    6.56
    %
    
    $
    203,173
    
    
    $
    3,469
    
    
    
    6.83
    %Securities held to maturity:Taxable
    
    
    82,148
    
    
    
    507
    
    
    
    2.47
    %
    
    
    125,344
    
    
    
    1,061
    
    
    
    3.39
    %
    
    
    103,744
    
    
    
    1,252
    
    
    
    4.83
    %Exempt from Federal
income tax
    
    
    27,097
    
    
    
    213
    
    
    
    3.14
    %
    
    
    19,267
    
    
    
    150
    
    
    
    3.11
    %
    
    
    9,465
    
    
    
    82
    
    
    
    3.47
    %Securities available
for sale:Taxable
    
    
    147,144
    
    
    
    1,101
    
    
    
    2.99
    %
    
    
    28,900
    
    
    
    181
    
    
    
    2.51
    %
    
    
    46,886
    
    
    
    391
    
    
    
    3.34
    %Other interest earning assets
    
    
    53,734
    
    
    
    27
    
    
    
    0.20
    %
    
    
    33,084
    
    
    
    16
    
    
    
    0.19
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Federal funds sold
and securities purchased under agreements to resell
    
    
    1,117
    
    
    
    
    
    
    
    0.00
    %
    
    
    7,316
    
    
    
    2
    
    
    
    0.11
    %
    
    
    35,237
    
    
    
    18
    
    
    
    0.20
    %Total interest-earning
assets
    
    $
    531,076
    
    
    $
    5,184
    
    
    
    3.90
    %
    
    $
    426,197
    
    
    $
    4,894
    
    
    
    4.59
    %
    
    $
    398,505
    
    
    $
    5,212
    
    
    
    5.23
    %Non interest-earning assets:Cash and due from
banks
    
    
    17,011
    
    
    
    
    
    
    
    
    
    
    
    18,496
    
    
    
    
    
    
    
    
    
    
    
    18,069Bank premises and
equipment
    
    
    15,632
    
    
    
    
    
    
    
    
    
    
    
    16,659
    
    
    
    
    
    
    
    
    
    
    
    17,765Other assets
    
    
    15,931
    
    
    
    
    
    
    
    
    
    
    
    15,198
    
    
    
    
    
    
    
    
    
    
    
    13,742Allowance for possible
loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,093
    )Total assets
    
    $
    579,650
    
    
    
    
    
    
    
    
    
    
    $
    476,550
    
    
    
    
    
    
    
    
    
    
    $
    444,988
  19




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TABLE 2
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
  Quarter ended March 31,2011 Compared to 2010
    
    
    2010 Compared to 2009Increase (Decrease) Due To
    
    
    Increase (Decrease) Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    NetInterest income on:Loans
    
    $
    7,550
    
    
    
    (148
    )
    
    $
    7,402
    
    
    $
    9,113
    
    
    $
    (27
    )
    
    $
    9,086Investment securities:Taxable
    
    
    (43,196
    )
    
    
    (554
    )
    
    
    (43,750
    )
    
    
    21,600
    
    
    
    (144
    )
    
    
    21,456Exempt from Federal
income tax
    
    
    7,830
    
    
    
    63
    
    
    
    7,893
    
    
    
    9,802
    
    
    
    (36
    )
    
    
    9,766Securities available for sale:Taxable
    
    
    118,244
    
    
    
    920
    
    
    
    119,164
    
    
    
    (17,986
    )
    
    
    (83
    )
    
    
    (18,069
    )Other interest earning assets
    
    
    20,650
    
    
    
    11
    
    
    
    20,661
    
    
    
    33,084
    
    
    
    16
    
    
    
    33,100Federal funds sold and
securities purchased
under agreements to
resell
    
    
    (6,199
    )
    
    
    (2
    )
    
    
    (6,201
    )
    
    
    (27,921
    )
    
    
    (9
    )
    
    
    (27,930
    )Total
    
    $
    104,879
    
    
    $
    290
    
    
    $
    105,169
    
    
    $
    27,692
    
    
    $
    (283
    )
    
    $
    27,409Interest expense on:Int DDAs & Savings deposits
    
    $
    56,214
    
    
    $
    12
    
    
    $
    56,226
    
    
    $
    74,112
    
    
    $
    (30
    )
    
    $
    74,082Time deposits
    
    
    6,680
    
    
    
    (105
    )
    
    
    6,575
    
    
    
    (4,487
    )
    
    
    (117
    )
    
    
    (4,604
    )Federal funds purchased,
and securities sold
under agreements to
repurchase
    
    
    3,925
    
    
    
    (1
    )
    
    
    3,924
    
    
    
    (2,454
    )
    
    
    (4
    )
    
    
    (2,458
    )Total
    
    $
    66,819
    
    
    $
    (94
    )
    
    $
    66,725
    
    
    $
    67,171
    
    
    $
    (151
    )
    
    $
    67,020Changes in net interest
income-tax equivalent
    
    $
    38,060
    
    
    $
    384
    
    
    $
    38,444
    
    
    $
    (39,479
    )
    
    $
    (132
    )
    
    $
    (39,611
    )
   20




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TABLE 3
SECURITIES AVAILABLE FOR SALE AND PORTFOLIO SECURITIES
  March 31,2011
    
    
    2010
    
    
    2009Securities available for saleU. S. Treasury and other U. S. Government agencies
    
    $
    178,749
    
    
    $
    27,268
    
    
    $
    56,245Obligations of states and political subdivisions
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    125
    
    
    
    153
    
    
    
    72Total securities available for sale
    
    $
    178,874
    
    
    $
    27,421
    
    
    $
    56,317Investment securitiesU. S. Treasury and other U. S. Government agencies
    
    $
    66,610
    
    
    $
    136,205
    
    
    $
    82,009Obligations of states and political subdivisions
    
    
    29,526
    
    
    
    22,270
    
    
    
    9,602Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    Other securities
    
    
    900
    
    
    
    900
    
    
    
    600Total investment securities
    
    
    97,036
    
    
    
    159,375
    
    
    
    92,211Total securities available for sale and investment securities
    
    $
    275,910
    
    
    $
    186,796
    
    
    $
    148,528
 TABLE 4
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
  MaturingAfter
    
    
    
    
    
    
    After 5 YrsWithin
    
    
    
    
    
    
    1 Yr But
    
    
    
    
    
    
    But Within
    
    
    
    
    
    
    After 10 Yrs.1 Year
    
    
    
    
    
    
    Within 5 Yrs
    
    
    
    
    
    
    10 Yrs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CarryingAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    AmountSecurities
available for saleU.S. Treasury
and other U.S.
Government
agencies
    
    $
    
    
    
    
    0.00
    %
    
    $
    10,010
    
    
    
    1.38
    %
    
    $
    168,739
    
    
    
    3.05
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    178,749Other securities
    
    
    125
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    125Total securities
available
for sale
    
    $
    125
    
    
    
    0.00
    %
    
    $
    10,010
    
    
    
    1.38
    %
    
    $
    168,739
    
    
    
    3.05
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    178,874Investment securitiesU.S. Treasury
and other U.S.
Government
agencies
    
    $
    2,000
    
    
    
    3.05
    %
    
    $
    42,506
    
    
    
    2.31
    %
    
    $
    22,104
    
    
    
    2.30
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    66,610Obligations of states
and political
subdivisions
    
    
    1,036
    
    
    
    4.66
    %
    
    
    14,124
    
    
    
    4.08
    %
    
    
    10,341
    
    
    
    4.24
    %
    
    
    4,025
    
    
    
    5.92
    %
    
    
    29,526Other securities
    
    
    900
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    900Total investment
securities
    
    $
    3,936
    
    
    
    3.50
    %
    
    $
    56,630
    
    
    
    2.87
    %
    
    $
    32,445
    
    
    
    2.99
    %
    
    $
    4,025
    
    
    
    5.92
    %
    
    $
    97,036Total securities
available for sale
and investment
securities
    
    $
    4,061
    
    
    
    3.50
    %
    
    $
    66,640
    
    
    
    2.78
    %
    
    $
    201,184
    
    
    
    3.04
    %
    
    $
    4,025
    
    
    
    5.92
    %
    
    $
    275,910
   21




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TABLE 5

SECURITIES ANALYSIS
 SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2011
    
    
    
    MARCH 31, 2011GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    182,355
    
    
    $
    99
    
    
    $
    (3,705
    )
    
    $
    178,749
    
    
    
    $
    66,610
    
    
    $
    971
    
    
    $
    
    
    
    $
    67,581STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,526
    
    
    
    793
    
    
    
    (128
    )
    
    
    30,191OTHER SECURITIES
    
    
    72
    
    
    
    53
    
    
    
    
    
    
    
    125
    
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    900TOTAL
    
    $
    182,427
    
    
    $
    152
    
    
    $
    (3,705
    )
    
    $
    178,874
    
    
    
    $
    97,036
    
    
    $
    1,764
    
    
    $
    (128
    )
    
    $
    98,672SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2010
    
    
    
    MARCH 31, 2010GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    27,111
    
    
    $
    194
    
    
    $
    (37
    )
    
    $
    27,268
    
    
    
    $
    136,205
    
    
    $
    684
    
    
    $
    (511
    )
    
    $
    136,378STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,270
    
    
    
    581
    
    
    
    (98
    )
    
    
    22,753OTHER SECURITIES
    
    
    72
    
    
    
    81
    
    
    
    
    
    
    
    153
    
    
    
    
    900
    
    
    
    
    
    
    
    
    
    
    
    900TOTAL
    
    $
    27,183
    
    
    $
    275
    
    
    $
    (37
    )
    
    $
    27,421
    
    
    
    $
    159,375
    
    
    $
    1,265
    
    
    $
    (609
    )
    
    $
    160,031SECURITIES AVAILABLE-FOR-SALE
    
    
    
    SECURITIES HELD-TO-MATURITYMARCH 31, 2009
    
    
    
    MARCH 31, 2009GROSS
    
    
    GROSS
    
    
    
    
    
    
    
    
    
    
    
    GROSS
    
    
    GROSSUNREALIZED
    
    
    UNREALIZED
    
    
    
    
    
    
    
    
    
    
    
    UNREALIZED
    
    
    UNREALIZEDAMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUE
    
    
    
    AMORTIZED COST
    
    
    GAINS
    
    
    LOSSES
    
    
    FAIR VALUEU S GOVERNMENT AND
AGENCY SECURITIES
    
    $
    56,239
    
    
    $
    200
    
    
    $
    (215
    )
    
    $
    56,224
    
    
    
    $
    82,009
    
    
    $
    1,552
    
    
    $
    
    
    
    $
    83,561STATE AND MUNICIPAL
SECURITIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,602
    
    
    
    276
    
    
    
    (20
    )
    
    
    9,858OTHER SECURITIES
    
    
    72
    
    
    
    22
    
    
    
    
    
    
    $
    94
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    600TOTAL
    
    $
    56,311
    
    
    $
    222
    
    
    $
    (215
    )
    
    $
    56,318
    
    
    
    $
    92,211
    
    
    $
    1,828
    
    
    $
    (20
    )
    
    $
    94,019
  22




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TABLE 6
LOAN PORTFOLIO
  2011
    
    
    2010
    
    
    2009Commercial & Industrial
    
    $
    24,467
    
    
    $
    26,386
    
    
    $
    27,648Real Estate
    
    
    162,297
    
    
    
    149,492
    
    
    
    136,680Consumer Loans
    
    
    27,822
    
    
    
    33,939
    
    
    
    35,527Other Loans
    
    
    4,014
    
    
    
    6,629
    
    
    
    5,486Total Loans
    
    $
    218,600
    
    
    $
    216,446
    
    
    $
    205,341
 TABLE 7
LOAN MATURITIES & INTEREST RATE SENSITIVITY
  Remaining Maturity Fixed Rate3 months or less
    
    $
    24,134Over 3 months through 12 months
    
    
    31,394Over 1 year through 5 years
    
    
    148,340Over 5 years
    
    
    6,015Over 1 year but variable rate
    
    
    3,298Total Loans
    
    $
    213,181
  23




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TABLE 8
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
  Quarter ended March 31,2011
    
    
    2010
    
    
    2009Beginning Balance
    
    $
    3,268
    
    
    $
    3,100
    
    
    $
    3,100Charge Offs:Commercial & Industrial
    
    
    
    
    
    
    43
    
    
    
    9Real Estate
    
    
    195
    
    
    
    30
    
    
    
    16Consumer
    
    
    157
    
    
    
    230
    
    
    
    117Other
    
    
    
    
    
    
    
    
    
    
    Total Charge Offs
    
    
    352
    
    
    
    303
    
    
    
    142Recoveries:Commercial & Industrial
    
    
    
    
    
    
    17
    
    
    
    5Real Estate
    
    
    2
    
    
    
    17
    
    
    
    Consumer
    
    
    108
    
    
    
    137
    
    
    
    63OtherTotal Recoveries
    
    
    110
    
    
    
    171
    
    
    
    68Net Charge Offs
    
    
    242
    
    
    
    132
    
    
    
    74Provision for Possible Losses
    
    
    242
    
    
    
    132
    
    
    
    74Ending Balance
    
    $
    3,268
    
    
    $
    3,100
    
    
    $
    3,100Total Loans Outstanding
    
    $
    218,600
    
    
    $
    216,446
    
    
    $
    205,341Average daily loans
    
    $
    219,836
    
    
    $
    212,286
    
    
    $
    203,173
 2011
    
    
    2010
    
    
    2009Percentages:Allowance for loan losses to end of quarter total loans
    
    
    1.49
    %
    
    
    1.43
    %
    
    
    1.51
    %Allowance for loan losses to average loans
    
    
    1.49
    %
    
    
    1.46
    %
    
    
    1.53
    %Allowance for loan losses to nonperforming assets
    
    
    39.76
    %
    
    
    70.06
    %
    
    
    146.57
    %Net charge offs to average loans
    
    
    0.110
    %
    
    
    0.062
    %
    
    
    0.036
    %
  24




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TABLE 9
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
  March 31,2011
    
    
    2010
    
    
    2009% Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan Loss
    
    
    % Gross
    
    
    Loan LossLoans
    
    
    Allowance
    
    
    Loans
    
    
    Allowance
    
    
    Loans
    
    
    AllowanceOutstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    Allocation
    
    
    Outstanding
    
    
    AllocationCommercial & Industrial
    
    
    1.80
    
    
    $
    59
    
    
    
    7.06
    
    
    $
    219
    
    
    
    7.68
    
    
    $
    238Real Estate
    
    
    81.66
    
    
    
    2,669
    
    
    
    61.81
    
    
    
    1,916
    
    
    
    28.90
    
    
    
    896Consumer
    
    
    12.29
    
    
    
    402
    
    
    
    22.52
    
    
    
    698
    
    
    
    23.23
    
    
    
    720Other
    
    
    4.25
    
    
    
    139
    
    
    
    8.61
    
    
    
    267
    
    
    
    24.39
    
    
    
    756Unallocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.81
    
    
    
    490100
    %
    
    $
    3,268
    
    
    
    100
    %
    
    $
    3,100
    
    
    
    100
    %
    
    $
    3,100
 TABLE 10
NONPERFORMING ASSETS
  2011
    
    
    2010
    
    
    2009Non-accrual Loans & Accruing Loans Past Due 90 Days or more
    
    $
    5,419
    
    
    $
    2,278
    
    
    $
    1,879Other Real Estate
    
    
    2,800
    
    
    
    2,147
    
    
    
    236$
    8,219
    
    
    $
    4,425
    
    
    $
    2,115Nonperforming Assets as % of Total Loans
    
    
    3.76
    %
    
    
    2.04
    %
    
    
    1.03
    %Non-accrual Loans & Loans Past Due 90 Days or More
as % of Total Loans
    
    
    2.48
    %
    
    
    1.05
    %
    
    
    0.92
    %
  25




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TABLE 11
AVERAGE DEPOSITS
  Quarter ended March 31,2011
    
    
    2010
    
    
    2009Non-interest bearing deposits
    
    $
    82,365
    
    
    $
    47,993
    
    
    $
    84,525Interest-bearing deposits
    
    
    308,209
    
    
    
    251,995
    
    
    
    177,883Interest-bearing time deposits
    
    
    113,708
    
    
    
    107,028
    
    
    
    111,515Total
    
    $
    504,282
    
    
    $
    407,016
    
    
    $
    373,923
 TABLE 12
TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
  Time remaining until maturity3 months or less
    
    $
    16,382Over 3 through 12 months
    
    
    43,375Over 12 months
    
    
    9,101Total
    
    $
    68,858
  26




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##### Table of Contents



TABLE 13
SHORT-TERM BORROWINGS
  Daily
    
    
    Average
    
    
    MaximumMarch
    
    
    Average
    
    
    Interest
    
    
    Month-EndBalance
    
    
    Balance
    
    
    Rate*
    
    
    Balance2011Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    14,254
    
    
    $
    14,670
    
    
    
    0.16
    %
    
    $
    14,2542010Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    10,641
    
    
    $
    10,745
    
    
    
    0.26
    %
    
    $
    10,6412009Federal funds purchased and
securities sold under
agreements to repurchase
    
    $
    15,665
    
    
    $
    13,199
    
    
    
    0.30
    %
    
    $
    15,665
 
 *
    
    on daily average balance  27




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##### Table of Contents



TABLE 14
INTEREST SENSITIVITY
  0-3
    
    
    4-12
    
    
    1-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    TotalAssetsInterest-earning assets:Loans, net of unearned income
    
    $
    26,286
    
    
    $
    31,461
    
    
    $
    151,570
    
    
    $
    6,015
    
    
    $
    215,332Investment securities
    
    
    1,232
    
    
    
    2,704
    
    
    
    56,630
    
    
    
    36,470
    
    
    
    97,036Securities available for sale
    
    
    125
    
    
    
    
    
    
    
    10,010
    
    
    
    168,739
    
    
    
    178,874Other interest earning assets
    
    
    35,589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,589Federal funds sold and securities
purchased under agreements to
resell
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97Total interest-earning assets
    
    
    63,329
    
    
    
    34,165
    
    
    
    218,210
    
    
    
    211,224
    
    
    
    526,928Non-interest-earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,303
    
    
    
    50,303Total assets
    
    $
    63,329
    
    
    $
    34,165
    
    
    $
    218,210
    
    
    $
    261,527
    
    
    $
    577,231Liabilities and stockholders equityInterest-bearing liabilities:Int DDAs, MMF, Savings deposits
    
    $
    27,540
    
    
    $
    88,741
    
    
    $
    189,722
    
    
    $
    
    
    
    $
    306,003Time deposits
    
    
    25,092
    
    
    
    70,162
    
    
    
    17,640
    
    
    
    
    
    
    
    112,894Federal funds purchased, and securities
sold under agreements to repurchase
    
    
    14,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,254Total interest-bearing liabilities
    
    
    66,886
    
    
    
    158,903
    
    
    
    207,362
    
    
    
    
    
    
    
    433,151Non-interest-bearing deposits
    
    
    12,902
    
    
    
    37,947
    
    
    
    25,045
    
    
    
    
    
    
    
    75,894Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,122
    
    
    
    16,122Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,064
    
    
    
    52,064Total liabilities and
stockholders equity
    
    $
    79,788
    
    
    $
    196,850
    
    
    $
    232,407
    
    
    $
    68,186
    
    
    $
    577,231Interest sensitive gap
    
    $
    (16,459
    )
    
    $
    (162,685
    )
    
    $
    (14,197
    )
    
    $
    193,341Cumulative interest sensitive gap
    
    $
    (16,459
    )
    
    $
    (179,144
    )
    
    $
    (193,341
    )
    
    $
    0Cumulative interest sensitive gap
as a percent of total assets
    
    
    -2.85
    %
    
    
    -31.04
    %
    
    
    -33.49
    %
    
    
    0.00
    %
  28




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##### Table of Contents



TABLE 15
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND
OFF-BALANCE SHEET ARRANGEMENTS
  PAYMENTS DUE INONE YEAR OR
    
    
    ONE TO
    
    
    THREE TO
    
    
    OVER FIVELESS
    
    
    THREE YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALDeposits without a
stated maturity
    
    $
    175,673
    
    
    $
    106,931
    
    
    $
    99,293
    
    
    $
    
    
    
    $
    381,897Consumer certificates
of deposit
    
    
    95,254
    
    
    
    13,088
    
    
    
    4,552
    
    
    
    
    
    
    
    112,894Federal funds borrowed
& repurchase agreements
    
    
    14,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,254Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 COMMITMENTS
  ONE YEAR OR
    
    
    ONE TO
    
    
    THREE TO
    
    
    OVER FIVELESS
    
    
    THREE YEARS
    
    
    FIVE YEARS
    
    
    YEARS
    
    
    TOTALCommitments to extend
credit:Commercial
    
    $
    10,214
    
    
    $
    126
    
    
    $
    2
    
    
    $
    
    
    
    $
    10,342Residential real estate
    
    
    3,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,241Revolving home equity
and credit card lines
    
    
    247
    
    
    
    683
    
    
    
    134
    
    
    
    
    
    
    
    1,064Other
    
    
    4,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,382Standby letters of credit
    
    
    830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830
  29




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##### Table of Contents



Item 4.
    
    Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in Internal Controls
  30




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##### Table of Contents



Part II. Other Information
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    (Removed and Reserved)
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 31.1
    
    
    Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    
    Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 
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SIGNATURES
  MERCHANTS & MARINE BANCORP, INC.Date:  May 16, 2011
    By:
    /s/ Royce CumbestRoyce Cumbest, Chairman of the BoardPresident and Chief Executive OfficerDate:  May 16, 2011
    By:
    /s/ Elise BourgeoisElise Bourgeois, Senior Vice President,Cashier and Chief Financial Officer  32